Home » Posts tagged 'global financial system'

Tag Archives: global financial system

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Paul Singer Warns A 40% Market Crash Is Coming

Paul Singer Warns A 40% Market Crash Is Coming

Earlier today, in a stark reversal from its traditionally cheerful demeanor, a Goldman Sachs strategist warned that  “purely based on elevated equity valuations, as measured by the S&P 500 Shiller P/E, and current growth, according to our US Current Activity Indicator (CAI), the risk of an equity drawdown of more than 10%”, i.e. a sharp market drop, or for lack of a better word, crash, “is the highest since the GFC.”

Well, Goldman wasn’t the only one to see a major market selloff in the coming months.

Speaking at the Aspen Ideas Festival, billionaire investor and Elliott Management founder, Paul Singer, warned that the global economy is heading toward a “significant market downturn” cautioning that “the global financial system is very much toward the risky end of the spectrum.”

While Paul Singer’s traditionally downcast outlook is hardly surprising, as it permeates every investor letter published by the successful investor who has been particularly clear in the past decade that the Fed’s monetary experiment will end terribly, he sees two particular reasons why the economy is approaching a tipping point: “global debt is at an all-time high. Derivatives are at an all-time high and it took all of this monetary easing to get to where we are today and I don’t think central bankers, or policymakers or academics are in any better shape to predict the next downturn and I think we are the high end of the risk spectrum.” 

He then ominously added that “I’m expecting the possibility of a significant market downturn.”

How bad would the crash be? According to the Elliott Management CEO, there will be a market “correction” of 30% to 40% when the downturn hits, although unlike Goldman – which gave a timeline of 12 months in which the next major market will materialize, Singer said he couldn’t predict the timing.

 …click on the above link to read the rest of the article…

We’re Flash Crashing to Hell – Jim Sinclair & Bill Holter

We’re Flash Crashing to Hell – Jim Sinclair & Bill Holter

Financial writer Bill Holter and renowned gold and financial expert Jim Sinclair warned last summer there were big problems coming in the global financial system. Today, Sinclair says, “We destroyed everything. We not only destroyed the financial markets, we destroyed society. I’m going for June of this year. The reset button gets reset after a few days of a flash crash that can’t be stopped. We’re flash crashing to hell, piece by piece by piece, until all of a sudden, the motion of the entity cannot be stopped.”

Holter says, “I think President Trump is going to preside over a bankruptcy. He’s gone through bankruptcies with his own companies and understands the process. That’s what this is. It’s the bankruptcy of the corporation of the United States.”

Sinclair adds, “Much of Trump’s business career is in bankruptcy, and he has used it as an asset quite successfully.”

Holter also points out, “Paul Volker, when he was Chairman of the Fed, was able to raise rates and able to tighten the money supply. He was able to create a deep recession. The reason he was able to do that was the country, corporations, individuals and the federal government itself was not over-leveraged in 1980 to the extent it is today. The over-leverage is everywhere today. If Paul Volker came in today and tried to do what he did back in 1979 and 1980, all you would see for markets and the economy is one big black smoking hole. You would have the entire system come down.”

Sinclair warns, “If Bill and I were standing on a street corner as preachers, our sign would read not ‘the end is near.’ Our sign would read, ‘it ended.’”

 …click on the above link to read the rest of the article…

Dollar Dominant & Dangerous – System Not Stable – Catherine Austin Fitts

Dollar Dominant & Dangerous – System Not Stable – Catherine Austin Fitts

Investment advisor and former Assistant Secretary of Housing, Catherine Austin Fitts, predicts the global financial system “will take some big hits before the end of the year.” Fitts explains, “Right now, economists say the dollar is ‘dangerous and dominant.’ It’s still, if you look at the market shares around the world, it’s still very, very significant portion of total reserves. So, it’s still very important. At the same time, the U.S. dollar hegemony is probably not going to last forever . . . So, I think the long term dollar looks very weak. Short term, it doesn’t look like it’s coming apart anytime soon, as far as I can see. What that means is when you have something that is dangerous and dominant, you have the possibility of extreme volatility events. That’s the new code word for the ‘you know what’ hits the, you know what. Whether it’s different countries exploding economically, or we whether are pressuring people that makes them very uncomfortable, these kinds of fights over shrinking pies are very dangerous because they mean covert wars. They mean overt wars, and the more we steal pies from each other instead of make new pies, the worse the situation gets. That’s what you are seeing. The system is not stable.”

Fitts goes on to say, “The real push are for real assets: real assets reflected in a stock, or real assets reflected by real estate or precious metals.”

There is good reason people are going to real assets. The U.S. government is “missing” $21 trillion between the DOD and HUD. This fact was uncovered by Fitts and economist Dr. Mark Skidmore last year.

…click on the above link to read the rest of the article…

The Global Financial System Is Unraveling, And No, the U.S. Is Not immune

The Global Financial System Is Unraveling, And No, the U.S. Is Not immune

Currencies don’t melt down randomly. This is only the first stage of a complete re-ordering of the global financial system.
Take a look at the Shanghai Stock Market (China) and tell me what you see:
A complete meltdown, right? More specifically, a four-month battle to cling to the key technical support of the 200-week moving average (the red line). Once the support finally broke, the index crashed.
Now take a look at the U.S. S&P 500 stock market (SPX):
SPX is soaring to new highs, not just climbing a wall of worry but leaping over it. So the engine of global growth–China–is exhibiting signs of serious disorder, and the world’s consumerist paradise–the U.S.– is on a euphoric high (Ibogaine in the water supply?)
This divergence is worth pondering. How can the two economies that have powered a 28-year Bull Market in just about everything (setting aside that spot of bother in 2008-09) be responding so differently to the global economy and global financial system’s woes?
There’s a rule of thumb that’s also worth pondering. While the stock market attracts all the media attention–every news cast reports the daily closing the the Dow Jones Industrial Average, the SPX and the Nasdaq stock index–the bond market is larger and more consequential. And larger still is the currency market–foreign exchange (FX).
As the chart below illustrates, a great many currencies around the world are in complete meltdown. This is not normal. Nations that over-borrow, over-spend and print too much of their currency to generate an illusion of solvency eventually experience a currency crisis as investors and traders lose faith in the currency as a store of value, i.e. the faith that it will have the same (or more) purchasing power in a month that it has today.

…click on the above link to read the rest of the article…

Russell Napier: “Turkey Will Be The Largest EM Default Of All Time”

Regular readers of the Fortnightly will know that The Solid Ground has long forecast a major debt default in Turkey. More specifically, the forecast remains that the country will impose capital controls enforcing a near total loss of US$500bn of credit assets held by the global financial system. That is a large financial hole in a still highly leveraged system. That scale of loss will surpass the scale of loss suffered by the creditors of Bear Stearns and while Lehman’s did have liabilities of US$619bn, it has paid more than US$100bn to its unsecured creditors alone since its bankruptcy.

It is the nature of EM lending that there is little in the way of liquid assets to realize; they are predominantly denominated in a currency different from the liability, and also title has to be pursued through the local legal system. Turkey will almost certainly be the largest EM default of all time, should it resort to capital controls as your analyst expects, but it could also be the largest bankruptcy of all time given the difficulty of its creditors in recovering any assets. So the events of last Friday represent only the end of the beginning for Turkey. The true nature of the scale of its default and the global impacts of that default are very much still to come.

Strong form capital controls produce a de facto debt moratorium, and very rapidly investors realize just how little their credit assets are worth. A de jure debt moratorium at the outbreak of The Great War in 1914 bankrupted almost the entire European banking system – it was saved by mass government intervention.

…click on the above link to read the rest of the article…

‘Perfect storm’: Global financial system showing danger signs, says senior OECD economist

‘Perfect storm’: Global financial system showing danger signs, says senior OECD economist

Nine years of emergency money has had a string of perverse effects and lured emerging markets into debt dependency, without addressing the structural causes of the global disorder.

William White says the lessons from the GFC have been forgotten.

William White says the lessons from the GFC have been forgotten.

Photo: AP

“All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten,” said William White, the Swiss-based head of the OECD’s review board and ex-chief economist for the Bank for International Settlements.

The Trump Administration's tax and spending blitz has pushed the US budget deficit toward $US1 trillion.

The Trump Administration’s tax and spending blitz has pushed the US budget deficit toward $US1 trillion.

Professor White said disturbing evidence of credit degradation is emerging almost daily. The latest is the disclosure that distressed UK construction group Carillion quietly raised £112 million ($195 million) through German Schuldschein bonds. South African retailer Steinhoff also tapped this obscure market, borrowing €730 million ($1.11 billion).

Schuldschein loans were once a feature of rock-solid lending to family Mittelstand companies in Germany. The transformation of this corner of the market into a form of high-risk shadow banking shows how the lending system has been distorted by quantitative easing (QE) and negative interest rates. Professor White said there was an intoxicating optimism at the top of every unstable boom when people convince themselves that risk is fading, but that is when the worst mistakes are made. Stress indicators were equally depressed in 2007 just before the storm broke.

…click on the above link to read the rest of the article…

Panama and the Criminalization of the Global Finance System

Panama and the Criminalization of the Global Finance System

Sharmini Peries:  Within a week the 11 million documents called the Panama papers, published by the International Consortium of Investigative Journalists, has become a household name. The documents are connected to the Panama law firm Mossack Fonsesca that helped establish offshore accounts for some of the wealthiest and most powerful leaders to launder money and evade taxes.

On Tuesday the police in Panama raided the Mossack Fonseca law firm to search for more documents linked to illicit activities. But what are they expecting to find, since we have already known for some time now that offshore accounts are being used to evade taxes by the banking sector, essentially white-collar crooks, at institutions such as Credit Suisse and others? But who is really behind the creation of these mechanisms and loopholes for tax evasion?

Economist Michael Hudson says Panama was created as a tax haven by certain sectors of our economy for this purpose. Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City, and he’s a former balance of payments economist for Chase Manhattan bank. He is the author of many books, and the latest among them is Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

Michael, let’s begin with a short history of the creation of Panama and how it was bought from Colombia by the United States, and its relevance today vis-a-vis the Panama papers.

HUDSON: Well, Panama was basically carved off from Colombia in order to have a canal. It was created very much like Liberia. It’s not really a country in the sense that a country has its own currency and its own tax system. Panama uses U.S. dollars. So does Liberia.

…click on the above link to read the rest of the article…

The IMF Joins the New Cold War

The IMF Joins the New Cold War

“The IMF’s Executive Board met today and agreed to change the current policy on non-toleration of arrears to official creditors. We will provide details on the scope and rationale for this policy change in the next day or so.”

Since 1947 when it really started operations, the World Bank has acted as a branch of the U.S. Defense Department, from its first major chairman John J. McCloy through Robert McNamara to Robert Zoellick and neocon Paul Wolfowitz. From the outset, it has promoted U.S. exports – especially farm exports – by steering Third World countries to produce plantation crops rather than feeding their own populations. (They are to import U.S. grain.) But it has felt obliged to wrap its U.S. export promotion and support for the dollar area in an ostensibly internationalist rhetoric, as if what’s good for the United States is good for the world.

The IMF has now been drawn into the U.S. Cold War orbit. On Tuesday it made a radical decision to dismantle the condition that had integrated the global financial system for the past half century. In the past, it has been able to take thelead in organizing bailout packages for governments by getting other creditor nations – headed by the United States, Germany and Japan – to participate. The creditor leverage that the IMF has used is that if a nation is in financialarrears to any government, it cannot qualify for an IMF loan – and hence, for packages involving other governments.

This has been the system by which the dollarized global financial system has worked for half a century. The beneficiaries have been creditors in US dollars.

But on Tuesday, the IMF joined the New Cold War. It has been lending money to Ukraine despite the Fund’s rules blocking it from lending to countries with no visible chance of paying (the “No More Argentinas” rule from 2001).

…click on the above link to read the rest of the article…

Guess What Happened The Last Time The Price Of Oil Plunged Below 38 Dollars A Barrel?

Guess What Happened The Last Time The Price Of Oil Plunged Below 38 Dollars A Barrel?

Question Mark Burning - Public DomainOn Monday, the price of U.S. oil dropped below 38 dollars a barrel for the first time in six years.  The last time the price of oil was this low, the global financial system was melting down and the U.S. economy was experiencing the worst recession that it had seen since the Great Depression of the 1930s.  As I write this article, the price of U.S. oil is sitting at $37.65.  For months, I have been warning that the crash in the price of oil would be extremely deflationary and would have severe consequences for the global economy.  Nations such as Japan, Canada, Brazil and Russia have already plunged into recession, and more than half of all major global stock market indexes are down at least 10 percent year to date.  The first major global financial crisis since 2009 has begun, and things are only going to get worse as we head into 2016.

The global head of oil research at Societe Generale, Mike Wittner, says that his “head is spinning” after the stunning drop in the price of oil on Monday.  Just like during the last financial crisis, we have broken the psychologically important 40 dollar barrier, and there are concerns that we could go much lower from here…

Price Of Oil - Public Domain

One analyst told CNBC that he believes that we could soon see the price of U.S. oil go all the way down to 32 dollars a barrel…

“We’re in a tug-of-war between a heavily shorted market and a glut of oil in the U.S. and globally, as Saudi Arabia continues to produce oil at elevated levels to maintain market share,” said Chris Jarvis at Caprock Risk Management, an energy markets consultancy in Frederick, Maryland.

“Couple this with a strengthening dollar as the market anticipates a U.S. rate hike this month, oil is heading lower with a near term target of $32 for WTI.”

…click on the above link to read the rest of the article…

No Serious Financial Repercussions from the Paris Attacks? Don’t Be Too Sure

No Serious Financial Repercussions from the Paris Attacks? Don’t Be Too Sure

Global sentiment might switch decisively from “risk-on” to “risk-off” with far-reaching consequences.

Goldman Sachs has helpfully announced that any financial repercussions from the attacks in Paris will be short-lived, and the political repercussions will be medium-term: Increased uncertainty likely to weigh on activity and increase market volatility in the short run (via Zero Hedge).

The analogies invoked to support this rosy view are the attacks in Madrid in 2004 and in London in 2005–tragedies that weighed very briefly on the global orgy of financial gains between 2003 and 2007.

But isn’t it obvious that the world of November 2015 is not the world of 2004?The global economy is not in a cycle of robust expansion of debt, wages, consumption, profits and stock valuations as it was in 2004.

Now, debt is softening or being revealed as impaired, wages are stagnant for the bottom 90%, real sales are down once subprime-auto-loan enabled vehicle purchases are subtracted, profits and forward projections for sales are crumbling, along with stock valuations.

The global financial system is fragile and vulnerable. Any number of relatively modest changes could push the entire shaky contraption off the cliff:

1. any increase in private-sector interest rates, for any reason

2. any faltering of global sentiment

3. externalities (disruptions from weather, war, shortages, a.k.a. grey swans)

4. unexpected crises (a.k.a. black swans)

5. any toppling-domino-like failure of counterparties as defaults pile up

Does this weekly chart of the S&P 500 look remotely bullish? Stochastics have rolled over in a “sell” signal, and MACD couldn’t even claw its way above the neutral line. Now MACD is also poised to roll over into a sell.

Does this chart of stocks, wages and real final sales look remotely bullish?Notice that all three have turned down, echoing the recessions and stock market collapses of 2001 and 2008.

…click on the above link to read the rest of the article…

 

Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?

Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?

Question Sign Red - Public DomainThe warnings are getting louder.  Is anybody listening?  For months, I have been documenting on my website how the global financial system is absolutely primed for a crisis, and now some of the most important financial institutions in the entire world are warning about the exact same thing.  For example, this week I was stunned to see that the Telegraph had published an article with the following ominous headline: “$3 trillion corporate credit crunch looms as debtors face day of reckoning, says IMF“.  And actually what we are heading for would more accurately be described as a “credit freeze” or a “credit panic”, but a “credit crunch” will definitely work for now.  The IMF is warning that the “dangerous over-leveraging” that we have been witnessing “threatens to unleash a wave of defaults” all across the globe…

Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.

Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.

This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.

The IMF is actually telling the truth in this instance.  We are in the midst of the greatest debt bubble the world has ever seen, and it is a monumental threat to the global financial system.

But even though we know about this threat, that doesn’t mean that we can do anything about it at this point or stop what is about to happen.

…click on the above link to read the rest of the article…

Why the Bear of 2015 Is Different from the Bear of 2008

Why the Bear of 2015 Is Different from the Bear of 2008

Are there any conditions now that are actually better than those of 2008?

It’s tempting to see similarities in last week’s global stock market mini-crash and the monumental meltdown that almost took down the Global Financial System in 2008-2009. The dizzying drop invites comparison to the last Bear Market that took the S&P 500 from 1,565 in October 2007 to 667 on March 9, 2009.

1. Then: Markets and central banks feared inflation, as WTIC oil had hit $133 per barrel in the summer of 2008.But this Bear is beginning in circumstances quite different from 2007-08. Let’s list a few of the differences:

Now: As oil tests the $40/barrel level, markets and central banks fear deflation.

2. Then: China had a relatively modest $7 trillion in total debt, considerably less than 100% of GDP.

now: China’s debt has quadrupled from $7 trillion in 2007 to $28 trillion as of mid-2014, an astonishing 282% of gross domestic product (GDP)

3. Then: Central banks had a full toolbox of unprecedented monetary surprises to unleash on the market: TARP, TARF, BARF (OK, that one is made up) rescue packages and credit guarantees, quantitative easing (QE), zero interest rate policy (ZIRP) and direct purchases of mortgages, to name just the top few.

Now: The central bank toolbox is empty: every tool has already been deployed on an unprecedented scale. Every potential new program is simply a retread of QE, yield curve bending, asset purchases, etc.–the same old bag of tricks.

4. Then: Central banks had a relatively clean slate to work with. Interventions in the market and economy were limited to suppressing interest rates in the post-dot-com meltdown era.

Now: Central banks have never stopped intervening since 2008. The market is in effect a reflection of 6+ years of unprecedented central bank interventions. Rather than a clean slate, central banks face a global marketplace that is dominated by incentives to speculate with leveraged/borrowed money established by 6 years of central bank policies.

 

…click on the above link to read the rest of the article…

 

Central Banks Ready To Panic — Again

Central Banks Ready To Panic — Again

Less than a decade after a housing/derivatives bubble nearly wiped out the global financial system, a new and much bigger commodities/derivatives bubble is threatening to finish the job. Raw materials are tanking as capital pours out of the most heavily-impacted countries and into anything that looks like a reasonable hiding place. So the dollar is up, Swiss and German bond yields are negative, and fine art is through the roof.

Now emerging-market turmoil is spreading to the developed world and the conventional wisdom is shifting from a future of gradual interest rate normalization amid a return to steady growth, to zero or negative rates as far as the eye can see. Here’s a representative take from Bloomberg:

Cheap Money Is Here to Stay

For decades, central banks lorded over markets. Traders quivered at the omnipotence of monetary authorities — their every move, utterance and wink a reason to scurry for safe havens or an opportunity to score huge profits. Now, though, markets are the ones doing the bullying.The Fed’s Countdown
Take New Zealand and Australia. Yesterday, the Reserve Bank of New Zealand slashed borrowing costs for the second time in six weeks even as housing prices continue to skyrocket. A day earlier, its counterpart across the Tasman Sea (already wrestling with an even bigger property bubble of its own) said a third cut this year is “on the table.”

Just one year ago, it seemed unthinkable that officials in Wellington and Sydney, more typically known for their hawkishness and stubborn independence, would join the global race toward zero. But with commodity prices sliding, China slowing and governments reluctant to adopt bold reforms, jittery markets are demanding ever-bigger gestures from central banks.

…click on the above link to read the rest of the article…

 

Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’

Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’

Nuclear War - Public DomainAfter all these years, the most famous investor in the world still believes that derivatives are financial weapons of mass destruction.  And you know what?  He is exactly right.  The next great global financial collapse that so many are warning about is nearly upon us, and when it arrives derivatives are going to play a starring role.  When many people hear the word “derivatives”, they tend to tune out because it is a word that sounds very complicated.  And without a doubt, derivatives can be enormously complex.  But what I try to do is to take complex subjects and break them down into simple terms.  At their core, derivatives represent nothing more than a legalized form of gambling.  A derivative is essentially a bet that something either will or will not happen in the future.  Ultimately, someone will win money and someone will lose money.  There are hundreds of trillions of dollars worth of these bets floating around out there, and one of these days this gigantic time bomb is going to go off and absolutely cripple the entire global financial system.

Back in 2002, legendary investor Warren Buffett shared the following thoughts about derivatives with shareholders of Berkshire Hathaway

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so
far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

 

…click on the above link to read the rest of the article…

 

 

 

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase